The Australian market defied a 4.6 per cent slump on Wall Street amid renewed European debt concerns to finish the day flat, buoyed by speculation the RBA may soon cut rates after weak jobs data and a better than expected profit result from telco giant Telstra.

The S&P/ASX 200 finished 0.5 points, or 0.01 per cent, weaker at 4140.8, having opened 2 per cent lower as jittery investors fled the market following speculation over France’s credit rating, which took a heavy toll on global markets overnight.

The market is pricing in at least one 0.25 of a percentage point rate cut when the RBA meets in September and an 80 per cent chance of a 0.50 of a percentage point rate cut.

An ABS report that put the national jobless rate above 5 per cent helped to propel the ASX into positive territory while sending the Aussie dollar down 1 US cent.
Photo: AFP

“We think it would be a remarkable and courageous decision if the RBA took interest rates down. Inflationary pressures are still strong and all of these resource projects haven’t started yet," he said.

“The weak jobs number has definitely given us a bit of a kick. The other interesting point is our market has outperformed the US, the SPI has been holding up very well, there has been extraordinary volumes and someone out there likes our market," Goldman Sachs head of institutional sales Richard Coppleson said.

In another wild trading session, the Aussie gained more than 1 per cent to a high of $US1.0285, having earlier shed a cent to a session low of $US1.0110 after the jobs data.

Speculation that Beijing will widen the US dollar-yuan band following a record high fix in China’s currency earlier in the day was seen as negative for the greenback across the board, and provided support to the Aussie.

Barack Obama met with US Fed boss Ben Bernanke as the Treasury Department reported that the US budget deficit was running at more than $US1 trillion again.
Photo: Reuters

The local currency was last at $US1.0270, up from $US1.0206 in New York.

Around the region, Japan’s Nikkei finished down 0.63 per cent and New Zealand’s NZX-50 index closed up 0.78 per cent. Hong Kong’s Hang Seng was trading 0.92 per cent weaker and China’s Shanghai Composite was up 0.73 per cent.

US Dow futures rallied over the day to be up 1.78 per cent, signalling a stronger start on Wall Street tonight.

Wild trading on exchanges around the world has left heads spinning in recent days as major north US and European indices plunged before rising sharply and slumping again.

Overnight on Wall Street, the Dow Jones Industrial Average tanked 4.62 per cent, while the S&P 500 fell 4.42 per cent and the Nasdaq shed 4.09 per cent.

Just a day earlier the indices had posted massive gains as they recovered from a brutal selldown that stemmed from ratings agency Standard & Poor’s decision last week to downgrade the US’s credit rating.

The three major ratings agencies – S&P, Moody’s and Fitch – all moved quickly to dispel the rumour, which led French President Nicolas Sarkozy to cut short his summer holiday to pledge new measures to slash the country’s public deficit.

However, the damage from the speculation was already done and markets across Europe fell sharply. At the close of trade, London’s FTSE-100 index was down 3.05 per cent, the CAC-40 in Paris was off a hefty 5.45 per cent and the DAX in Frankfurt was 5.13 per cent lower.

Markets in Spain, Italy, Greece, Portugal, the Netherlands, Switzerland and Russia also fell.

While the big three ratings agencies confirmed France’s AAA rating wasn’t under threat, Fitch had a word of warning on Cyprus, which it believes will need another bailout from Europe.

“I think it will be a struggle to get through this year," Fitch analyst Chris Pryce said, adding that help would almost certainly be needed in early 2012.

“The president and the chairman discussed the outlook for the recovery and for jobs as well as fiscal issues, including the need to tackle long-term deficit reduction," the White House said in a statement issued after the meeting.

“They also discussed the situation in Europe. This was the third time the president met with the chairman this year.

The meeting came as the Treasury Department announced that the US budget deficit through to July totalled $US1.1 trillion - the third time in three years that it’s hit the once-unheard of height. At current rates, the US’ 2011 deficit will come in higher than the $US1.29 trillion deficit logged a year ago, but below the record of $US1.41 trillion that was set in 2009.